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September 19, 2011

Behold, the Solo 401(k) – Good for Self-Employed Individuals

Filed under: investment — Tags: , — admin @ 12:41 pm

Ready to be your own boss? If you are, you might want to look over the fundamentals one more time. Now, we’re not trying to tell you that you haven’t thought about everything there is when it comes to freeing yourself from that pesky J-O-B and getting to be your own boss, setting your own schedule and planning for retirement. Oops, did we say that last part out loud? Unfortunately, a lot of people don’t stop to really think about their own retirement plans, thinking that they’re going to want to run their business all the way up until their deaths. That does happen from time to time, but may more people dream about a traditional retirement where they aren’t working. You have to decide for yourself what type of retirement makes sense to you. All things considered, you’re going to want to make sure that you can take control of your finances, and there’s no better way to really cap this process than to really think about retirement even as a self employed professional.

If you had a 401(k) from work, you can roll it over into a solo 401(k), which is actually the subject of this article.

Just what is a solo 401(k)? Well, it describes the type of retirement plan to a T — instead of the 401(k) you have at your old job, you will have a retirement plan just for you and you alone. This is perfect for self-employed professionals that aren’t taking on employees. So the solitary lawyer running his own one-man show is eligible, but the man dreaming about hiring a team of lawyers would do better with another retirement plan.

The obvious benefit of a solo 401(k) over other self employment-oriented retirement plans is that you can sock away a lot more money. If you haven’t heard of the solo 401(k) or the Individual 401(k), don’t beat yourself up. It’s actually quite new in terms of tax laws — established in 2001, which means that it’s only been around for about a decade.

At the time of this writing, you can contribute up to 49,000 a year, which is also tax-deductible. These tax-deductible contributions can definitely grow, and that means that you’ll be able to let more of your money grow without tax interference.

However, before you jump right into the new 401(k) fun, it’s important to understand a few more things. First and foremost, the big 49,000 (54,500 if you’re over 50) number is actually composed of two parts: the salary deferral contribution plus the profit sharing contribution. This will be different for different business structures.

Let’s cover the sole proprietorship, one of the simplest businesses around. It’s not a separate legal entity, which means that it exposes the owner to a lot of liability. Still, this is the one that requires the least amount of paperwork, and that’s definitely a good thing. In the case of a sole proprietorship, you will need to calculate the net adjusted business profit. This is simply the gross revenue that you brought in for the year and then subjecting all of your business expenses, plus half of the self employment tax (you are paying yourself employment taxes, right?). This number is held at a maximum of $16,500.

The profit sharing component comes into play where you can make up to 20% of the net adjusted business profits. So essentially, that makes up the other half of the $49,000. If you’re not sure how this plays out in real life, you will need to ask your tax professional of choice for assistance in order to make sure that you got this number correct.

For a regular corporation, you can just refer back to the W-2 issued out. You can contribute up to 100% of W-2 earnings, and then 25% of W-2 earnings for the profit sharing contribution.

Keep in mind that the assets you put into a solo 401(k) will grow tax-deferred, which does mean that you won’t pay taxes on any dividends or investment earnings until you withdraw the assets themselves. You can withdraw the money after 59 1/2 without penalty. If you decide to withdraw the money before then, you will end up paying income taxes as well as a 10% penalty for the privilege.

However, what if you need the money really badly and you don’t have any other choice? Consider tapping the other benefit of this retirement plan — tax-free loans. You will be able to get a loan for half of the total balance, up to $50,000. The loan repayment schedule is usually done over the course of 5 years, though the purchase of a primary residence can extend this to 15 years. You will get your money from an individual 401(k) tax free as well as penalty free, but this is provided that you pay back the loan on time. You really don’t want to miss a payment — you will default on the loan and have to pay a lot in taxes as well as IRS penalties, as it’ll be counted as an invalid withdrawal just like if you had withdrawn the money before 59 1/2 under other circumstances.

Even though you will have to pay back the money with interest, you will get to put the money back into your retirement account as well as the interest. That’s something that isn’t offered with SEP IRAs or Roth IRAs.

Overall, if you’re really ready to take things to the next level, you really need to stop and get yourself a good retirement plan like the Solo 401(k). Since the rise of the Internet has caused a new revolution for the world of finance, you will want to make sure that you go online to open up your Solo 401(k) account. You won’t have to worry that the investment advisors won’t be able to answer your questions. After being around for a decade or so, this is a plan that accountants and other tax professionals are now familiar with, and they can help you get started in the right direction. The other benefit of managing your money online is that you can actually watch it grow and get reports — even text and email alerts sent to your phone and email address, respectively.

With so many benefits waiting for you, there’s no reason not to save for retirement with a Solo 401(k) plan — even when you’re self employed!

December 3, 2010

Property Valuation Versus Property Appraisal

Filed under: investment — Tags: — admin @ 12:17 am

How can you know what your home is really worth? Why is there such a discrepancy between the values? Much of it has to do with how the values are determined by each professional. Lets take a look at the differences between an appraisal and a valuation.

After years of serving your family as a wonderful and comfortable home, you have made the decision its time to sell your house. Of course you want to get top dollar for your investment so you turn to a professional real estate agent for an appraisal as guidance on how much to ask. You are thrilled with their initial selling estimate only to be confused and frustrated when the valuation report come in $50,000 less.

An appraisal of your property is intended as a guide only and can be prepared by a real estate professional. The preparer takes into account the local area as well as recent sale prices of comparable homes. An appraisal has no legal basis or standing and they are generally requested by sellers looking for an ideal of how much they might get for their home.


To have a formal valuation you must turn to a qualified valuer with the necessary training, education and experience to ensure they consider all the issues and features pertaining to your property. You should expect to pay $300-$500 for the valuation and can expect to receive a detailed, written report. Valuing a piece of property can be a complex undertaking and usually takes time to do correctly and will consider items such as:

* Locale and zoning
* Construction and condition of the structure
* Location and positioning on the lot
* Any covenants or encumbrances
* Construction or building defects
* Unique feature of the home

Do I Need An Appraisal or A Valuation?

There are very few times when a valuation is not required as part of a home sale transaction. They are typically required when it is necessary to set a definitive value for a piece of property. Some examples include establishing the value of a deceased persons estate, buying property that has been foreclosed on, or a property settlement. Of course, if a lender is involved in your transaction you will almost certainly be required to have a valuation.

Why ask for an appraisal then? Simply, because they are quick, straightforward estimates of what you might expect your home to sell for. If you are just beginning the process of selling or simply thinking of testing the waters, a real estate professional’s estimate of what you can ask may help you make you decision before you have to spend money on the valuation. (more…)

February 2, 2009

Investing in Internet businesses

Filed under: investment — Tags: , , , , — admin @ 11:43 pm

In an evermore financially challenging world, we often wonder what else we can possibly do to make things better. And all of us might have different answers. For some, investing money into stocks might be a good way to go, but not everyone has the money to do it. Some might get a second job, although this is really not necessary for everyone. Some might go back to college to get a higher education, but not all of us have the time and resources to do this.

However, there is one option that practically anyone could take advantage of, and that is investing in an internet business. An internet business is great for several reasons. One, it is inexpensive to get started. You can write a blog and put Google Adsense on it for free! And it is really inexpensive to set up a nice website and start earning ad revenues from it, or even doing some affiliate hosting for a profit! Also, online stores are all the rage right now. (more…)

January 7, 2009

Multiply your Money

Filed under: investment — Tags: , , , , — admin @ 5:05 pm

Money is a powerful tool that helps a human being to purchase things of his desire, buy foods, buy a home, buy a car, afford for vacations and what not? It is essential that we safeguard such powerful tool and make more money to lead a stress-free and happy life. It is not a good idea to possess all the money in our hand or as a single Investment. The surplus money we have apart from the reserves for our day to day expenses and emergency expenses can be invested prudently. There are various ways of multiplying your money thru various Investments.

Certificate of Deposit

Investing your money in the form of “Certificate of Deposit” in a Bank is the safest way but offers moderate return compared to other Investments. Some long term deposits may offer the benefit of Tax Savings. (more…)

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